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11/29/01 Technical Traders Report
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Technical Traders Report Subscribers:

MARKET ALERT SERVICE

Subscribers to the current reports can sign up at the following link:
http://www.investmenthouse.com/alertttr.htm

THE PLAYS: JAKK broke out in a strong move!

Continued Plays: FLEX, from Tuesday's update, looks like it will now form a handle, pulling back today on decreasing volume. CHEZ continues to tight up in the ascending wedge (new on the report last night). NVDA popped higher but did not make it over resistance today. It will consolidate further before breaking out over the highs. Other stocks on the report that are looking ready to make moves: ORLY, BORL, MTON, GMST, VRTS, RDRT. BRCD was up today despite lower volume. That can change in a continued rally. KLAC is also moving up; see last night's report for buy points for these plays and others.

GMST (Gemstar-TV Guide--$26.06; -0.28; optionable): Electronic Equipment
http://biz.yahoo.com/p/g/gmst.html
STATUS: GMST is forming an ascending wedge above the 10 day MVA (25.87), with volume below average the last 2 days and price pulling back to the support. Today the stock tapped the 18 day MVA on the low at 24.92, then was back up to close with a doji above the 10 day. Thus, it has posted higher lows on each of the 2 recent pullbacks, forming the pattern. Looking for a breakout over 28.29 on strong volume. Showing solid buying. Target: 34 (200 day MVA).
BUY POINT: Breakout: 28.42 on volume of 6 million or higher. Stop: 26.43 (7%)
POSITION: Stock and/or January or February $22.50 calls to buy (QLF AX or
BX; low open interests).

http://www.investmenthouse.com/ct/gmst.html

VRTS (Veritas Software--$40.39; +0.88; optionable): Software
http://biz.yahoo.com/p/v/vrts.html
STATUS: Continued to pull back from Tuesday's high of 43.89, closing with a doji just above support at the 10 day MVA (38.91). Volume decreased right along with price for the 2 days as VRTS begins forming an ascending wedge-type pattern. Looking for the breakout in a rally; we are looking to purchase stock for the covered call play. Target: the 200 day MVA at the 48.55 range. Good money flow, and relative strength is climbing.
BUY POINT: Aggressive: 41.80 on volume of 15.5 million or higher. Stop: 38.87 (7%)
POSITION: Stock on the buy point. Calls to sell on topping: December
$35 or $40 calls (VIV AG or AH).

http://www.investmenthouse.com/ct/vrts.html

New:

IGEN (Igen Internat--$36.28; +0.84; optionable): Scientific & Technical Instruments
http://biz.yahoo.com/p/i/igen.html
STATUS: Testing the recent strong breakout from a cup/flat base pattern. IGEN hit a high this month at 38.13 on the breakout, then pulled back on lower volume to catch support at the 10 day MVA (35.11) above which the stock opened this morning. Volume was even lower at 124,300 (avg. 202,000) on the bounce from the moving average after some Wednesday selling, but price looks ready to hold the support here. Looking for another strong leg up once the stock is done with consolidating here. It looks ready to move. Strong money flow and buying. Target: 46
BUY POINT: Aggressive: 37 on volume of 205,000 or higher. Stop: 34.41 (7%).
POSITION: Stock and/or January $30 or $35 calls to buy (GQ AF or AG).

http://www.investmenthouse.com/ct/igen.html

Back On:

WLP (Wellpoint Health Network--$117.90; -0.41; optionable): Health Services
http://biz.yahoo.com/p/w/wlp.html
STATUS: Pulling back in the handle to its 13-month cup. WLP completed that portion of the base after bouncing up the 50 day MVA since August and now that it is at the top has shown the kind of gradual price decline appropriate for a handle. Volume for the past three days has been well below average (slightly rising and up today at 429,000; avg. 719,000). The stock showed a doji with a tap on the low at the 10 day MVA (117.40). May consolidate further in this handle, but that is what it is, and we are looking for a breakout over 120. Money flow is strong. Target: 148
BUY POINT: Aggressive: 120 on volume of 1.07 million or higher. Breakout: 123.03 on volume in the range of 1.07 million or higher. Stop: 114.42 (7%).
POSITION: Stock and/or January $115 calls to buy (WLP AC).

http://www.investmenthouse.com/ct/wlp.html

Updates: QLGC was on the last Update report, and on a stronger move today looks ready to break out over the November high (50.44). The stock made the buy point of 49.29 in the cup with handle, and on continued rising volume remains a buy up to 51.75. Including an updated chart:

http://www.investmenthouse.com/ct/qlgc.html

PMCS (Pmc-Sierra--$23.02; +1.20; optionable): Semiconductor
http://biz.yahoo.com/p/p/pmcs.html
STATUS: A nice ascending wedge formed above the short term moving averages, immediate support at the 10 day MVA (22.08), where the stock opened Thursday for the move up. Volume remained high but was lower at 16.6 million (avg. 10.6 million), but in a chip rally we will look for that to pump up again and break the stock out. PMCS is showing continued high money flow, and relative strength is climbing. Looks good!
Target: initial, 30
BUY POINT: Breakout: 24.64 on continued strong volume (min. breakout volume is 14.3 million). Stop: 22.92 (7%).
POSITION: Stock and/or January $20 calls to buy (SQL AD).

http://www.investmenthouse.com/ct/pmcs.html

Indexes:

SOX (Phili Semi--$533.17; +21.73; optionable):
STATUS: The index has formed an ascending wedge with upper resistance at both 535 and 555 (the latter at the level of two intraday highs in the pattern). It bounced nicely from the 18 day MVA today, and as the rally goes forth we look for a continued climb. A breakout from the pattern presents aggressive entry points since the 200 day MVA is above the wedge at 563. Thus, the highest buy point is on a breakout; below that are 2 aggressive entries at 537 (the index hit 536.67 three times in the last few days) and just over 550 (over Tuesday's intraday high, which would be on a breakout from the wedge itself). Resistance may be stronger just below the lowest buy point, however.
BUY POINT: Aggressive: 537 in a chip rally. Breakout over the 200 day MVA: 550.33 on rising volume.
POSITION: Aggressive: December $530 calls to buy (SJX LF). Breakout: December $540 or $550 calls to buy (SJX LH or LJ).

QQQ (Nasdaq 100--$39.95; +1.20; optionable):
STATUS: Another ascending wedge is being formed by the QQQ; the pattern has an errant high (from Tuesday) that at 40.97 tapped at the current level of the 200 day MVA (actually at 41.24 today). We are looking for a breakout from the pattern for taking aggressive positions, with a move over the 200 day MVA offering a higher level buy point. The index has had a nice run up from the September lows, and needed this consolidation. We will see if it can break both resistance levels. Target: initial, 42.50
BUY POINT: Aggressive: 40.50 on volume in the range of 113 million (was down Thursday to 83.6 million; avg. is 84 million). Stop: 37.67 (7%). Breakout over the 200 day MVA: 41.37 on similar volume. Stop: 38.47 (7%).
POSITION: January $40 calls to buy (QQQ AN).

SUMMARY:
- Indexes bounce from the up trendlines, Nasdaq on fair volume, NYSE on lower.
- Good action between resistance and support.
- SOX trying to form a wedge to breakout, but NVLS tries to stop the move in its tracks
- Durable goods orders soar, but a lot of government spending in there.
- The debt burden of U.S. citizens comparable to Latin American debt?
- Subscriber Questions

Indexes bounce off trendlines in a decent rally.

We said this is where it gets interesting, and the indexes came through, bouncing up off of their down trendlines in decent fashion. After Wednesday's close on the lows, it took a very strong durable goods number (+12.8%) to turn things around. That, however, is how economies and markets recover: better than expected numbers drive things higher.

Volume was mixed but not stellar either way. The Nasdaq rose on climbing volume, what we always want, but volume was still below Tuesday's churn. NYSE volume fell as the Dow and S&P 500 climbed. Again we are seeing the opposite price/volume action in those two indexes as they tag along behind the Nasdaq as it makes the wake for the market.

Still not bad price action.

Today's action, while not the best from a volume standpoint, was still constructive in the bigger picture. The indexes held their up trendlines and bounced higher on some obvious buying. They continue to ride up the trendlines and move in an ever compressing zone between the up trendlines and important resistance at the 200 day MVA and the March 2000 downtrends. As we noted before, this action is building pressure and will lead to an upside breakout or a deeper correction. We want to see the indexes continue to hold above the trendline, moving laterally and slightly up, building a good foundation for a strong breakout. Thus far it is proceeding as we would want. A few more lateral sessions would be very constructive.

SOX and Nasdaq trying to form and breakout of wedges.

There is a lot of talk about how technology and semiconductors in particular are overvalued after moving up off of the bottom. Despite that talk and indeed in the face of it, the SOX made a strong move today as it and the Nasdaq form ascending wedges below resistance. Breakouts from these patterns can be quite strong.

After hours some cold water was splashed on the semiconductor shine as NVLS, a chip equipment maker, announced earnings that met the mark but the company failed to give promising guidance for the future. Basically, it said the orders were just not there. The stock was up well during the session, but it was pummeled afterwards. That took a lot of other chips stocks lower in the evening trade.

Will that be enough to take the Nasdaq and the SOX down? It could take it down lower in the morning and maybe for the session on Friday, but a wedge forms when there is a constant resistance level on the top and higher and higher lows on the bottom. It bounces up and down in that range, steadily making higher lows each time it sells back. Thus, the index could sell down tomorrow and as long as it holds on the up trendline, it is still in the pattern.

Moreover, look at the good news heard of late: KLAC, TSM, INTC, NVDA, ALTR and others have recently affirmed the next quarter and have even raised guidance or said things were looking better and better. Outside chips FMKT raised its forecast and NOVL said it would beat Q1 estimates. While one unenthusiastic report could dampen things temporarily, unless investors want to dump shares now (something they have not shown to now), we would not expect it to tank the market.

THE ECONOMY

Mixed news: very strong and still weak.

Durable goods orders rocketed to a 12.8% gain after falling over 9% in September and the economic shutdown that occurred that month. We wrote about how the economy was improving before 9-11 (durable goods orders were up in August) and how it had snapped back pretty fast. Today's report is indicative of that, though it is not a stampede to the cash register across the board. Much of the number was driven by airplane orders (can you believe it?) and government spending. Those were a lot heavier than expected. Still, even backing those out, the gain was 3.4% with non-defense capital spending up over 7%. Very solid performance, and a very good sign when capital spending, the centerpiece of the recession, starts to increase at a solid clip.

New home sales were the other bookend of good news today, rising 0.2% or 880K versus the expected 850K and the 878K prior that was itself revised upward. Low mortgage rates at work again, but they have moved higher. Will they continue to lure more people into the market? Still, rates are quite low compared to a year ago.

On the downside, jobless claims rose unexpectedly by 54,000 to 488,000. Continuing claims were 454,000, still a bit lower as the trend remains down. The big shocker was continuing claims. They had been falling, but last week shot up to over 3 million claims, the largest jump since 1974, topping the December 1982 top. While the trend on new jobless claims remains down and the numbers lag the economy historically, the report rattled the bond market. The fed funds futures contract has now handicapped with 100% a 25 basis point rate cut on December 11.

U.S. debt load comparable to Latin American debt?

In the nightly 'bull versus bear' debate on one of the financial stations, infamous bear David Tice was stating the Dow would drop to 3,000 to 4,000. One of the main themes of Mr. Tice's position is the heavy debt burden of the U.S. citizen. Tice is not way out in right field by himself on this one; we have talked before of the problem of a consumer maxed out on debt in trying to get a loan even if the Fed makes funds available. If you cannot qualify for the loan because of your debt ratios, it does not matter how low the rates are.

While we are not in total disagreement on that, we do believe Mr. Tice overlooks other important factors when he makes his broader conclusions. One of his comments tonight struck us as demonstrative of this. When debating over where the Fed rate cuts would help much, Mr. Tice stated that if debt was a good thing with respect to economic recovery, then Latin America should be in great shape (referencing the huge national debts of those countries). In essence, he was comparing third world government debt to U.S. citizen debt.

That makes for a catchy debate statement, but the person debating did not analyze that comment. It is an outlandish comment that compares apples to oranges. Third world countries do not enjoy the solid rule of law and governmental stability of the U.S.; they do not possess strong currencies that are the world's choice for a store of value; they are not leaders in technology, but have commodity-based economies (i.e., they have to make it on the back of the industrial nations). The U.S. is the major innovator, has the currency of choice, and stimulates innovation and invention with its stability (copyrights and patents mean something) and more or less free enterprise reward system. Implying that U.S. consumer debt dooms the U.S. to the fate of third world countries is myopic in foresight and borders on irresponsible. The U.S. has trillions of idle dollars trying to figure out where to go to make money; that money will find those areas that offer returns. That gets the money into the system generating economic activity. Most Latin American countries do not have that kind of capital in their governments and certainly not in the hands of the citizenry.

End Part 1 of 2

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